Reduced rate on building project

Some advice needed please. Entered into a contract with a local builder (sole trader) in February 2023 for the conversion of a barn into a self-contained living unit (bathroom, bedroom, kitchen area) and a garage / carport. Several years ago, the barn was used in connection with an arborist business, never lived in and since we took over the property in 2020 that has remained the case. During February and March 2023, the builder and I engaged in discussions regarding the application of the reduced VAT rate of 5%. We both concluded that this rate was applicable, as per HMRC guidance. At no point did the builder express any disagreement or request additional information regarding the revised VAT rate and no certificate was completed. On May 5th 2023 I received amended invoices from the builder reflecting the updated rate. From that date onward, all subsequent invoices applied the 5% rate (circa 20 additional invoices). Throughout the project's duration, there were no further discussions regarding the VAT rate, and I had assumed the matter closed. However, relations with the builder started to deteriorate, the project became several months overdue and in early April 2024, I requested the application of liquidated damages (per our contract). Following that request, the builder responding by saying that they believe that the incorrect VAT amount has been charged and submitted an invoice for me to pay based on the rate being 20%. Needless to say, we have reached a stalemate. I am seeking guidance on two crucial matters: 1. Verification of whether the project legitimately qualifies for the reduced rate of 5% VAT. 2. If the project does not qualify, where does the responsibility lie in order to remedy? I feel the builder initially agreed to the 5% rate as an incentive to secure my business, which subsequently led to them securing additional projects through my architect. However, it appears that now, with the relationship strained, they are attempting to hold me solely accountable for this arrangement. Would it not be the case that they are accountable to the treasury and have a responsibility not to chop and change the VAT rate? Many thanks

Hi,

If a qualifying conversion takes place then the majority of the work completed by a builder would be at the reduced rate of VAT. This would include the conversion of a barn into a self contained dwelling.

Buildings and construction (VAT Notice 708)

If the conditions are met for a qualifying conversion then the reduced rate of VAT should be applied by the builder and this is not optional or subject to change.

HMRC can't get involved in a dispute between two parties however and this would need to be resolved between yourself and the builder or through legal channels.

Thank you.